| Course | AC502 Business Law for Accountants |
|---|---|
| Unit | Unit 3 |
| Paper type | Case brief |
| Length | About 500 words, 4 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Accounting |
| Updated | October 2026 |
Free sample paper for AC502 Unit 3
No Duty in Negligence, a Trial on Fraud: A Unit 3 Case Brief of Ultramares Corp. v. Touche
[Student Name]
Purdue University Global
AC502: Business Law for Accountants
Unit 3 Case Brief
[Instructor Name]
[Date]
The case is real; the brief, its comment and its framing are the writer's own coursework analysis.
Caption
Ultramares Corporation against Touche and others, decided by the Court of Appeals of New York on January 6, 1931, reported at 255 N.Y. 170. Opinion by Chief Judge Cardozo.
Facts
The defendants, a firm of public accountants, audited Fred Stern & Co., a rubber importer, and certified its balance sheet at December 31, 1923. They supplied thirty-two numbered copies, knowing the company used such statements to obtain credit from banks, creditors and others, though no particular lender was named to them. The plaintiff, a factor, received one copy and lent money to Stern in reliance on it. Stern was in fact insolvent; its accounts receivable had been inflated by fictitious entries that the auditors did not detect. Stern went bankrupt, and the plaintiff sued the auditors in negligence and fraud.
Procedural History
The trial judge dismissed the fraud count before it reached the jury; the jury found for the plaintiff on negligence, but the judge set that verdict aside. The Appellate Division reinstated the negligence verdict and left the fraud dismissal in place. The Court of Appeals reviewed both counts.
Negligence
Issue. Does an auditor owe a duty of care, enforceable in negligence, to a third party it did not know would rely on its certificate?
Holding. No. Absent privity of contract or a relationship close to it, the auditor is not liable to an unknown third party for negligence.
Reasoning. Cardozo reasoned that imposing such a duty would leave accountants open to claims of no fixed size, lasting no fixed period, from people they could never have identified when they signed. A slip in the audit could lead to claims from anyone who later saw the statements. The court left that expansion to the legislature.
The famous line limits negligence, not dishonesty: the same opinion that closed the door on careless auditors to strangers left it open for auditors who certify what they do not believe.
Fraud
Issue. May a third party sue auditors for fraud without privity?
Holding. Yes. The fraud count should have gone to the jury.
Reasoning. Fraud does not require privity. A jury could find that the auditors certified the balance sheet as true to their own knowledge when they had no genuine belief in its truth, and that such reckless indifference may amount to fraud. The court ordered a new trial on that count.
Comment
Later New York decisions kept the privity requirement but defined what comes close to it. In its 1985 Credit Alliance decision, involving Arthur Andersen, the court required that the auditor know the statements will be used for a particular purpose, by a known party, and that some conduct link the auditor to that party.
References
Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 483 N.E.2d 110 (1985).
Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441 (1931).
Reading the AC 502 Unit 3 instructions
The third AC502 unit asks for a case brief in a standard format. Give the caption, court, year and judge. State the facts the court relied on, not every fact in the record. Summarize the procedural history in two or three sentences. Where the court decided more than one claim, give each its own issue, holding and reasoning, because different claims can produce different results. Phrase each issue as a question the court answered and each holding as that answer. Explain the reasoning in your own words, including any policy concern that drove the result. Close with a short comment on how later courts treated the rule. Avoid quoting the opinion at length. Cite the case and the later decision you discuss in APA 7.
How this AC502 Unit 3 example is built
The sample's caption names the parties, the New York Court of Appeals, the decision date and Chief Judge Cardozo. Facts cover the December 31, 1923 balance sheet, the thirty-two numbered copies, the factor's loan and the fictitious receivables. Procedural history explains the dismissed fraud count, the negligence verdict set aside and reinstated, and review by the high court. The negligence section asks whether an auditor owes a duty to an unknown third party, holds that it does not, and explains the court's concern about unlimited exposure. The highlighted sentence separates negligence from dishonesty. The fraud section reaches the opposite result. A comment traces near-privity to the 1985 Credit Alliance decision.
AC502 Unit 3 rubric: what earns full points
Case briefs in AC502 are graded on accuracy and structure. Points go to facts limited to what the court used, a correct procedural history and issues framed as questions the court actually answered. Graders reward briefs that separate claims with different outcomes, because merging them misstates the case. Reasoning should be explained in the student's words, with the policy concern identified. The comment earns credit when it connects the case to later law accurately. Briefs that quote long passages, overstate the holding, or present the fraud result as if negligence liability had been imposed lose substantial credit. A clean format and APA 7 citations to the cases complete the work.
AC502 Unit 3 help from the desk
A frequent Unit 3 error is a single issue and holding for a case that decided two claims differently. Facts run long and include details the court never used. Procedural history is wrong, especially in Ultramares, where the trial and appellate courts treated the counts differently. Holdings are stated as broad principles rather than answers to the issue. Reasoning repeats the court's language without explanation. The comment overstates what later courts did with the rule. If your section assigned a different case, such as Credit Alliance or a securities decision, our writers can brief it in the format your instructor uses.
Get an AC502 Unit 3 example written to your instructions
Name the decision assigned for Unit 3, with any brief template from your instructor and the rubric. A brief with holding and rule kept apart, and a second issue track wherever the court decided two questions, is returned in 24-48h. First samples cost nothing. The brief treats a published opinion as an academic exercise and counsels no one. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC502 Unit 3 questions, answered
Why brief a 1931 case in a graduate course?
Because the rule it announced still frames accountant negligence claims in New York and shaped the alternatives other states adopted. Courts that reject it define their own approach against it. The example's comment makes that point in two sentences, so a reader sees why the decision appears in readings on accountant liability rather than as legal history.
Should the brief say the auditors were careless?
It should report what the court said, carefully. The opinion treated the evidence as enough for a jury to find negligence and even to infer fraud, which is not the same as a finding that the firm committed fraud. The example keeps that distinction, because a brief stating the auditors were found fraudulent misreports the procedural posture of the case.
How is the fraud holding stated without overreaching?
Narrowly. The example states that an auditor who certifies figures as true on its own knowledge, with no genuine basis for vouching for them, may be found to have acted fraudulently, and that gross negligence can support that inference. It does not claim negligence and fraud merge, which is the misreading graders tend to deduct for here.
Where can I find a free AC502 Unit 3 sample paper?
This page holds a full AC502 Unit 3 case brief of Ultramares Corp. v. Touche, with caption, facts, procedural history, paired issues, holdings and reasoning for negligence and fraud, a comment and APA 7 references.
Why did the court allow the fraud claim but not negligence?
Because fraud does not depend on privity. The court would not impose a duty of care toward unknown lenders, but it held that auditors who certify figures without any genuine belief in them can be liable to anyone who relied, so a jury had to decide that count.